Credit usage intentions amongst Generation Y students

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Credit usage intentions amongst

Generation Y students

PJ van Schalkwyk

orcid.org/0000-0002-6800-4978

Thesis submitted in fulfilment of the requirements for the degree

Doctor of Philosophy in Marketing Management at the North-West

University

Promoter:

Prof AL Bevan-Dye

Co-promoter:

Prof N de Klerk

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PREFACE

I thank God for the ability to complete this study.

I would also like to thank the following people for their contributions:

My supervisor, Prof. Ayesha Bevan-Dye, for her expert help as well as the statistical analysis, without who I could not have finished this study.

My co-supervisor, Prof. Natasha de Klerk, for her guidance and assistance. My parents, aunt, brother and girlfriend for their support and understanding.

Linda Scott for the language editing and Aldine Oosthuyzen for the data capturing and formatting.

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ABSTRACT

Keywords: consumer credit, Generation Y, credit, debt, student loans, finance,

materialism, status consumption, image consciousness, social comparison, impulsive buying, credit intentions.

Part of modern consumerism is the switch from buying with cash to buying on credit. This is a global trend and consumers are spending more and saving less. Banks and retailers are taking full advantage of this fact and are encouraging consumers to open accounts and to buy on credit. Students are a prime target due to their future earning potential and many students are heavily indebted by the time they graduate. South Africa has more than 20 million credit-active consumers of whom approximately half are in arrears with their payments. The South African government, realising the extent of the problem, exacted the National Credit Act (NCA), which has been credited for somewhat shielding South Africa from the worst of the 2008 global recession. A recession many blame on the easy availability of credit.

The first empirical objectives of this study were to determine Generation Y students’ actual credit use which includes types of credit used, sources of income, factors influencing Generation Y credit use, credit health and financial concerns. The next empirical objective was to determine Generation Y students’ materialism, status consumption, social comparison, and impulsive buying tendencies and their attitude towards money and credit and credit usage intentions in the South African context. The third empirical objective was to determine whether credit usage intentions among Generation Y students are a seven-factor structure consisting of materialism, status consumption, money as a motivator, impulsive buying, social comparison, attitude towards credit and credit usage intentions. The fourth empirical objective was to test a model of the influence of materialism, status consumption, social comparison, impulsive buying, money as a motivator and attitude towards credit shape on credit usage intentions among Generation Y students in South Africa. The last empirical objective was to determine the influence gender has on materialism, status consumption, social comparison, impulsive buying, money as a motivator and attitude towards credit.

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The sampling frame consisted of 26 universities in South Africa, of which four university campuses were selected. The selected university campuses included two from a traditional university, one from a university of technology and one from a comprehensive university. A convenience sample of 630 students was taken during 2017. Statistical analysis of the collected data included factor analysis, descriptive statistics, structural equation modelling and an independent samples t-test.

The study found that 71 percent of students used some form of credit, mostly NSFAS, although 73 percent claimed to be dependent on parents and family as their primary source of income. Most students were able to fulfil their financial obligations. As such, only 7 percent were struggling to keep up and 9 percent were behind on payments. Tuition and related expenses were the participants’ biggest concern.

The empirically tested model indicates that materialism and status consumption tendencies influence Generation Y students’ attitude towards money, which, together with impulse buying and social comparison tendencies, influences their attitude towards credit and consequent credit usage intentions.

This study contributes towards understanding the motivations of students when purchasing products on credit. This study determined why Generation Y students chose to use credit, where they obtain credit and on what they spend the available credit. In addition, the study illustrates the relationship between materialism, status consumption, social comparison, impulsive buying, money as a motivator, attitude towards credit and credit usage intentions among Generation Y students.

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OPSOMMING

Sleutelwoorde: Verbruikerskrediet, Generasie Y, krediet, skuld, studentelening,

finansiering, materialisme, statusverbruik, beeldbewustheid, sosiale vergelyking, impulsiewe koop, krediet bedoelings.

Deel van moderne verbruikerswese is die oorskakeling van kontant na krediet. Dit is 'n wêreldwye tendens en verbruikers spandeer meer en bespaar minder. Banke en kleinhandelaars moedig verbruikers aan om rekenings oop te maak en op krediet te koop. Studente is 'n belangrike teiken-mark as gevolg van hul toekomstige verdienstepotensiaal en baie studente het baie skuld teen die tyd dat hulle gradueer. Suid-Afrika het meer as 20 miljoen krediet-aktiewe verbruikers, waarvan ongeveer die helfte agterstallig is met hul betalings. Die Suid-Afrikaanse regering, wat die omvang van die probleem besef, het daarom die Nasionale Kredietwet (NKW) geïmplimenteer om verbruikers te beskerm. Die NKW het Suid Afrika ook in ‘n mate beskerm teen die gevolge van die 2008 finansiële krisis.

Die eerste empiriese doelwit van hierdie studie was om die generasie Y-studente se werklike kredietgebruik, tipes kredietgebruik, inkomstebronne, faktore wat die generasie Y kredietgebruik, kredietgesondheid en finansiële belange beïnvloed, te bepaal. Die volgende empiriese doelwit was om die generasie Y-studente se materialisme, statusverbruik, sosiale vergelyking en impulsiewe koop tendense te bepaal, en hul houding teenoor geld en krediet en kredietgebruik bedoeling in die Suid-Afrikaanse konteks. Die derde empiriese doelwit was om vas te stel of kredietgebruik bedoeling onder generasie Y-studente 'n sewe-faktorstruktuur is wat bestaan uit materialisme, statusverbruik, geld as motiveerder, impulsiewe koop, sosiale vergelyking, houding teenoor krediet- en kredietgebruik bedoeling. Die vierde empiriese doelwit was om 'n model van die invloed van materialisme, statusverbruik, sosiale vergelyking, impulsiewe koop, geld as motiveerder en houding teenoor kredietvorm op kredietgebruik bedoeling onder generasie Y-studente in Suid-Afrika te toets. Die laaste empiriese doelwit was om die invloed wat geslag op materialisme, statusverbruik, sosiale vergelyking, impulsiewe koop, geld as motiveerder en houding teenoor krediet te bepaal.

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Die steekproefraamwerk bestaan uit 26 universiteite in Suid-Afrika, waarvan vier universiteitskampusse gekies is. Die gekose universiteitskampusse sluit in twee uit 'n tradisionele universiteit, een van 'n universiteit van tegnologie en een van 'n omvattende universiteit in. 'n Gerieflikheids steekproef van 630 studente is gedurende 2017 geneem. Statistiese analise van die versamelde data sluit in faktorontleding, beskrywende statistiek, strukturele vergelyking modellering en 'n onafhanklike steekproef t-toets. Die studie het bevind dat 71 persent van die studente een of ander vorm van krediet gebruik het, meestal NSFAS (National Student Financial Aid Scheme), hoewel 73 persent beweer het dat hulle afhanklik is van ouers en familie as hul primêre bron van inkomste. Die meeste studente kon hul finansiële verpligtinge nakom. Slegs 7 persent sukkel om tred te hou en 9 persent was agter met betalings. Onderrig- en verwante uitgawes was die grootste besorgdheid van die deelnemers.

Die empiries getoetste model dui aan dat materialisme en statusverbruikstendense invloed op die generasie Y-studente se houding teenoor geld beïnvloed, wat saam met impulskoop en sosiale vergelykingstendense hul houding teenoor krediet en gevolglike kredietgebruiks bedoelings beïnvloed.

Hierdie studie dra by tot die kennis van die motivering van studente by die aankoop van produkte op krediet. Hierdie studie het bepaal waarom generasie Y-studente gekies het om krediet te gebruik, waar hulle krediet kry en waarop hulle die beskikbare krediet spandeer. Daarbenewens illustreer die studie die verband tussen materialisme, statusverbruik, sosiale vergelyking, impulsiewe koop, geld as 'n motiveerder, houding teenoor krediet- en kredietgebruik bedoeling onder generasie Y-studente.

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LIST OF TABLES

Table 2-1: Reasons for business exit 2006 – 2016 ... 26

Table 2-2: Secured and unsecured loans ... 31

Table 3-1: Milestones and characteristics of the various generations ... 51

Table 4-1: South African higher education institutions ... 87

Table 4-2: Questionnaire design ... 93

Table 4-3: Coding information ... 95

Table 5-1: Pilot test results ... 107

Table 5-2: Coding information ... 108

Table 5-3: Frequency table of responses ... 113

Table 5-4: Pattern matrix ... 128

Table 5-5: Descriptive statistics ... 130

Table 5-6: Collinearity diagnostics ... 131

Table 5-7: Correlation matrix ... 132

Table 5-8: Standardised coefficient estimates ... 137

Table 5-9: Comparison of the fit indices of Structural Models A and B ... 143

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LIST OF FIGURES

Figure 2-1: Status of South African consumers’ credit accounts ... 30

Figure 2-2: Types of credit used, by total value ... 33

Figure 3-1: The theory of planned action ... 59

Figure 3-2: The theory of planned behaviour ... 60

Figure 3-3: Proposed model that determine credit usage intentions... 81

Figure 4-1: Marketing research process ... 83

Figure 4-2: Sampling design process ... 86

Figure 5-1: Type of higher education institution ... 115

Figure 5-2: Participants’ age categories ... 116

Figure 5-3: Gender ... 117

Figure 5-4: Year of study ... 118

Figure 5-5: Province of origin ... 119

Figure 5-6: Home language ... 120

Figure 5-7: Types of credit used ... 121

Figure 5-8: Sources of income... 122

Figure 5-9: Credit purchases ... 123

Figure 5-10: Debt management ... 124

Figure 5-11: Reasons for credit use ... 125

Figure 5-12: Credit applications ... 126

Figure 5-13: Financial concerns ... 127

Figure 5-14: Confirmatory factor analysis ... 136

Figure 5-15: Model A ... 140

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Figure 6-1: Model of the attitudes that determine credit usage intentions

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LIST OF ACRONYMS

AMOS Analysis of Moment Structures ATM Automatic Teller Machine EFA Exploratory factor analysis FICO Fair, Isaac and Company FSB Financial Services Board HEI Higher education institution IT Information technology GDP Gross domestic product NCA National Credit Act

NSFAS National Student Financial Aid Scheme SEM Structural equation modelling

SMME Small and medium-sized enterprises SPSS Statistical Package for the Social Science USA United States of America

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CHAPTER 1 INTRODUCTION AND PROBLEM STATEMENT

1

1.1 INTRODUCTION

The meaning of ‘credit’ is derived from the Greek word ‘credo’, which translates into ‘to believe’ and refers to the belief of the credit giver that the credit taker will honour his or her obligations. The modern global economy, as well as the high standard of living enjoyed in many countries, is built on this belief (Beares, 2013:3; Ironfield-Smith et al., 2005:133).

Credit plays a major role in stimulating the economy. It gives consumers the opportunity in funding the purchase of goods they could not ordinarily afford and contributes to the economy by increasing consumer spending. Both the global economic boom in the early 2000s and the subsequent recession have been attributed to the ease with which credit was given and the lax credit controls at the time (Stoop, 2009:365). In South Africa the increased availability of credit fuelled the extraordinary rise of the middle class and drove economic growth, which reached its peak around 2008 (Nzukuma, 2017). Unsecured lending is still increasing in South Africa, growing by 5 percent year on year by the end of April 2018, while real gross domestic product (GDP) growth is closer to 1 percent (Absa, 2018; Lamprecht, 2018).

Credit is, however, a mixed blessing to many. Many consumers spend everything they earn or even more than they earn using credit without even realising it. Obtaining more credit is often seen as equivalent to obtaining additional income without realising the future cost (Mapother, 1999:78). This is due to the abstract and unreal quality of credit transactions for many people (Roth, 2008). In 2017, almost 25 million South Africans, eight million more than the total number of employed people in South Africa, were credit-active and seven out of ten middle-class consumers claimed that they are financially distressed (Ferreira, 2017; Anon., 2017c). Research by the Momentum financial group had similar findings and indicated that in 2018, 73.5 percent of South African households were experiencing financial difficulty (Smith, 2018b). The household debt to disposable

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income ratio was at 71.4 percent at the end of 2017 and total household debt amounted to R1.69-trillion (Ferreira, 2017). This high debt to disposable income often forces consumers to take out new loans to repay old loans, which further aggravates the problem of high consumer debt and which causes many people to become over-indebted. Consumers become stuck in a situation where they are unable to repay their loans, while interest charged on those new loans increase their obligations (Stoop, 2009:368). When a consumer becomes unable to repay loans, credit providers can obtain court judgements against them for the outstanding amount. The judgement is recorded by credit agencies and is referred to as blacklisting (Neethling, 2006:376). The effects of being blacklisted can be severe and may include not being able to obtain further finance, higher interests rates, difficulty in renting property and higher insurance premiums. Moreover, employers may be hesitant to hire a person who is blacklisted (Irby, 2014).

Several factors must be considered when examining the credit woes of South Africans. External factors such as past discrimination based on race and gender led to a significant disparity among South Africans. Discrimination was not limited to the public sector but was also practised by the private sector and the apartheid system “supported, encouraged, and even demanded discrimination and unfair treatment of customers by business entities”. Consequently, many people lack knowledge and experience concerning credit, leaving them vulnerable to exploitation and unethical marketing practices (Rampersad & Reddy, 2012:7407). This led to many problems, including the emergence of the micro lending industry, which often lends money at extravagant interest rates. In an effort to mitigate the possible consequences of over-indebtedness and to protect consumers from such unethical practices, the government enacted the National Credit Act (NCA) (34 of 2005). The NCA focuses on a number of problems, including the high cost of credit, lack of access to credit, vulnerable consumers being taken advantage of, reckless granting of credit and unethical debt collection (Kelly-Louw, 2008:200). The literature suggests several factors are likely to impact on credit usage intentions. The first factor is materialism, which is commonly defined as “the importance a consumer attaches to worldly possessions” (Belk, 1984: 291). Previous studies have found that materialism is associated with a positive attitude towards debt and may be used as a variable in predicting a consumer’s propensity for incurring debt and willingness to take

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on higher levels of debt (Donnelly et al., 2013:122; Ponchio & Aranha, 2008:21; Fitzmaurice & Comegys, 2006:298). This is especially relevant to this study since similar studies have found that consumers in developing countries tend to be more materialistic and a comparative study found that young adults in South Africa are more materialistic than those from the selected European countries (Duh et al., 2014:251; Postel, 2008). Another factor is status consumption, which is “the motivational process by which individuals strive to improve their social standing through the conspicuous consumption of consumer products that confer and symbolise status both for the individual and surrounding significant others” (Eastman et al., 1999:93). Social inequality often pushes poorer households to engage in status consumption and this leads consumers, who can ill afford it, to incur debt to finance a lifestyle that they believe will command the respect of their community and peers (Ordabayeva & Chandon, 2010:28; Chipp et al., 2011:130). Social comparison is also thought to influence credit usage and refers to “a tendency to compare one’s own status to that of others in determining whether or not one has enough” (Norvilitis & Mao, 2013:391). Life satisfaction decreases the more often people make upward (unfavourable) comparisons, regardless if they earn high levels of income themselves (Peng, 2007:224). This leads some consumers to fall into an aspirations trap where larger and more frequent purchases become necessary to satisfy their competitive appetite (Nagpaul & Pang, 2017a:12). Social comparison has been shown to normalise debt; that is, people in debt are more likely to consider debt as normal and widespread among their peers and, therefore, socially acceptable (Pattarin & Cosma, 2012:115). Another factor believed to have an influence on credit usage is the concept of impulsive buying, which is defined as “a consumer’s tendency to buy spontaneously, unreflectively, immediately and kinetically” (Rook & Fisher, 1995:306). Impulsive buying is associated with the desire for immediate gratification, risk-seeking and self-centeredness, all of which are linked to irresponsible credit behaviour (Norvilitis, 2014:635; Adams & Moore, 2007:101). Materialism is an important antecedent of impulsive buying and affects how much people will spend on impulsive purchases and how often people engage in impulsive buying (Richins, 2013:3).

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Naturally, a person’s attitude towards money itself has an influence on credit usage. Money as a motivating force refers to the effect money has on people’s behaviour. Money-based rewards are considered a powerful external motivator for some depending on a person’s attitude towards money (Monteiro et al., 2014:14). Attitudes towards money may be formed through education, experience and habits. Attitudes will determine how consumers perceive, value and treat money (Engelberg & Sjoberg, 2006:2027). Emotional versus logical attitudes towards money and spending will determine spending patterns and credit use (Adams & Moore, 2007:101). Studies have found that people who consider money as more important are also more likely to accumulate debt (Harnish et al., 2018:190; Robb & Sharpe, 2009:26; Phau & Woo, 2008:540).

Consumers are not always rational and pragmatic when using credit, as emotions and attitude towards credit also play an important role. This includes emotional factors such as status and prestige considerations, financial attitudes such as unrealistic optimism, level of financial knowledge, debt tolerance and psychological constructs like the locus of control and cognitive dissonance (Kennedy, 2013:7; Kim & Jang, 2013:39; Finn, 1992:658; Forman, 1987:2028). Attitude will influence the number of credit accounts people hold, their frequency of credit use and their repayment decisions (McHugh & Ranyard, 2012, Xiao et al., 1997:32). These attitudes towards money and debt are shaped during childhood and lifestyle, upbringing and family structure all play a role (Rindfleisch et al., 1997:320; Kirkcaldy & Furnham, 1993:1079).

The youth segment represents a salient current and future target market across a range of industry sectors, including credit providers. In 2018, the youth segment was referred to as Generation Y (Duh, 2014:975). According to Markert (2004:21), whereas the previous generation, Generation X, includes people born between 1966 and 1985, Generation Y refers to individuals born between 1986 and 2005. Working within the age parameters of the mid-year report by Statistics South Africa (2018), Generation Y made up approximately 35 percent of the South African population in 2018. University students often have a higher social status within a community and are often of particular interest to marketers (Noble et al., 2009:617).

Indeed, the student market is often seen as one of the most coveted consumer segments due to the market's size, students' role as early-adopters and trendsetters, the lifelong

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brand loyalties acquired during these formative years and their influence over parental purchases (Noble et al., 2009:617). Students are also an important segment for advertising and marketing by credit providers, although credit use among students is lower than among working consumers (Anon., 2013). This is because a graduate qualification means that students have a higher than average future earning potential, which makes them a desirable market segment. This leads to them being targeted by credit providers looking to build brand loyalty early on (Nga et al., 2011:245; Mansfield & Warwick, 2000:617). This is also true in South Africa where banks are increasingly targeting students, not only with student loans but also by offering student-specific credit cards. A recent study among students found that some banks were so successful in marketing to students that they managed to increase credit card usage among students from 9.5 percent in 2010 to 45 percent in 2012 in some areas. More recent research estimates that 29 percent of students used credit cards in 2017. Although credit card use among students may be widespread, the value remains low and the 18- to 25-year old age group only hold one percent of the total credit card debt compared to the next age group, from 26 to 35, who hold 40 percent and are the most heavily indebted group. Banks are not the only organisations targeting students, with 57 percent of students reported that they use store credit. Not all students are equipped to handle this responsibility and research has found that up to 50 percent of credit-active 18 to 26 year-old consumers are battling to pay their debts (Student Village, 2017; Goko, 2013).

There are also several reasons for focusing on the university student portion of Generation Y, including:

 Students tend to be homogenous with regard to income and necessary expenditures, which allows non-economic trends to be seen more readily.

 Students have a high exposure to debt such as student loans.

 Newer generations are more comfortable with credit and being in debt.

 Students are willing to take on debt on the premise of a higher future potential income.

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 Young adults’ debt is an important issue as they make relatively high use of credit (Davies & Lea, 1995:665).

1.2 PROBLEM STATEMENT

Globally, students have become an important market segment for both retailers and credit providers since they are increasingly buying on credit. However, financial problems are one of the primary reasons for student attrition and many students drop out of tertiary education to avoid getting deeper into debt (Sagenmüller, 2018; Martin, 2018). This then makes it important to determine how students’ attitudes and values will impact their current and future credit use. Chien and Devaney (2001:162) indicate that research has shown that the growth in credit use since the 1980s is due, in part, to a change in attitude toward credit and that consumers are more willing to use credit to finance current consumption. Coupled with greater accessibility of credit and more knowledge about the benefits and risks involved in using credit this may help explain the increased acceptability of credit.

The literature indicates that the respective generations are quite different and that these differences include their attitudes toward credit (Eisner 2005:12). Starting in the 1990s, it became evident that the way people viewed debt had changed and that credit had become part of everyday financial life for younger generations, which raised concerns about the comfort level that students display in dealing with credit (Pinto et al., 2001:49; Davies & Lea, 1995:663). Considering the important role that credit plays in the South African economy, as well as the fact that almost three quarters of credit-active consumers struggle to keep up with their obligations, there is a need to find ways to encourage people towards becoming more responsible with their credit decisions (Smith, 2018a; Anon., 2013), particularly as it pertains to today’s youth – Generation Y. To do so, the problem will first have to be studied and it will have to be determined why individuals buy on credit and their attitude towards credit.

Financial literacy leads to better financial decision-making and financial illiteracy has been blamed for harmful financial decisions and over-indebtedness (Shim et al., 2010:1459). However, research shows that the emotional component of decision-making also plays an important role (Shapiro & Burchell, 2012:2). A person’s attitude towards debt is

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influenced by several internal emotional factors, which also determine a person’s likelihood of acquiring credit. These factors have been the focus of research for the last 30 years. Past research has focused heavily on materialism or the importance of material possessions (Belk, 1984:291). People who show more materialistic tendencies tend to spend more money and are more likely to incur debt (Fitzmaurice & Comegys, 2006:298). Furthermore, according to Watson (1998:203), people who are more inclined towards being materialistic tend to have a more positive attitude towards debt. Materialism can thus be used to predict the propensity towards debt (Ponchio & Aranha; 2008:21). Research also indicates that people in developing countries are more materialistic than people in developed countries (Jacobs & Smith, 2010:15). Nga et al. (2011:245) used image consciousness, materialism and compulsive spending to predict credit card behaviour among the youth and found a significant positive relationship between image consciousness and materialism and between materialism and compulsive spending but not that compulsive spending acted as a mediator for credit card use. Yamauchi and Templer (1982) found that consumers who use more credit tend to view money as a source of prestige or power, have greater anxiety over money and are less concerned with retaining money(Tokunaga, 1993:314). Xiao et al. (1995:155) later developed a test to determine credit card attitudes among students with the three dimensions of behavioural, affective and cognitive aspects. They found that more positive attitudes towards credit are determined by the affective and cognitive dimensions and demographics also played a role in shaping attitudes.

Debt is arguably one of the biggest problems facing South African consumers. Almost 44 percent of South Africans are in debt, 70 percent of middle class consumers claim that they are financially distressed and approximately 14 000 consumers apply for debt reviews each month (National Credit Regulator, 2017; Ferreira, 2017; Anon., 2017c). Although financial literacy has been regarded by some as the solution to the current debt crisis, research points to the fact that the emotional component of financial decision-making also plays an important role and needs to be considered when attempting to understand the factors that push consumers to finance their purchases and lifestyles through credit use (Shapiro & Burchell, 2012:2; Shim et al., 2010:1459). Some researchers have pointed out that the biggest distinction between Generation Y and previous generations may be their attitude towards money (Duh, 2014:974). A closer

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examination of the attitudes influencing credit usage intentions among Generation Y students is thus warranted and will be used to build an understanding of the credit problems currently prevalent in the South African economy.

1.3 STUDY OBJECTIVES

The following objectives have been formulated for the study:

1.3.1 Primary objectives

The primary objective of this study was to determine whether the psychological tendencies identified from the literature influenced the participants’ attitude towards credit and whether attitude towards credit acted as an antecedent to credit usage intentions. From the available literature, the following predictors were identified, namely materialism, status consumption, impulsive buying, social comparison, money as a motivator and credit attitude.

1.3.2 Theoretical objectives

In order to achieve the primary objective, the following theoretical objectives were formulated for the study:

1.3.2.1 Discuss the historic foundation of modern consumer credit.

1.3.2.2 Examine the global growth of consumer credit and how it has shaped the modern market.

1.3.2.3 Review the literature on the importance of credit to the South African economy.

1.3.2.4 Discuss the relationship university students have with credit.

1.3.2.5 Determine the factors that influence attitude towards credit according to the available literature.

1.3.2.6 Conduct a literature review on the characteristics of Generation Y consumers relevant to their credit behaviour.

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1.3.2.7 Propose a model of the influence of materialism, status consumption, social comparison, impulsive buying, money as a motivator and attitude towards credit on credit usage intentions among Generation Y students.

1.3.3 Empirical objectives

In accordance with the primary objective of the study, the following empirical objectives were formulated:

1.3.3.1 Determine Generation Y students’ actual credit use, including their sources of income and credit types, their credit purchases, debt management, reasons for credit use, credit applications and financial concerns in the South African context.

1.3.3.2 Determine Generation Y students’ materialism, status consumption, social comparison and impulsive buying tendencies and their attitude towards money and credit and credit usage intentions in the South African context. 1.3.3.3 Determine whether credit usage intentions among Generation Y students

are a seven-factor structure consisting of materialism, status consumption, money as a motivator, impulsive buying, social comparison, attitude towards credit and credit usage intentions.

1.3.3.4 Empirically test a model of the influence of materialism, status consumption, social comparison, impulsive buying, money as a motivator and attitude towards credit on credit usage intentions among Generation Y students in South Africa.

1.3.3.5 Determine the influence gender differences have on Generation Y students’ attitude towards credit and credit usage intentions.

1.3.4 Hypotheses

A hypothesis is an unproven statement about a phenomenon that is of interest to the researcher and may be in the form of a tentative statement about the relationship between variables. In the formulation of a hypothesis, the null hypothesis states that there is no

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effect while the alternative hypothesis is one in which some effect is expected. The null hypothesis is tested and may be rejected based on evidence in which case the alternative is accepted (Malhotra 2018:50; 446).

The following hypotheses were formulated and tested to achieve the empirical research objectives:

Ho1: Determinants of credit usage intentions is not a seven-factor structure consisting of materialism, status consumption, money as a motivator, impulsive buying, social comparison, attitude towards credit and credit usage intentions.

Ha1: Determinants of credit usage intentions is a seven-factor structure consisting of materialism, status consumption, money as a motivator, impulsive buying, social comparison, attitude towards credit and credit usage intentions.

Ho2: Materialism does not have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ha2: Materialism does have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ho3: Status consumption does not have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ha3: Status consumption does have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ho4: Money as a motivator does not have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ha4: Money as a motivator does have a direct significant positive influence on Generation Y students’ attitude towards credit.

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Ho5: Impulsive buying does not have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ha5: Impulsive buying does have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ho6: Social comparison does not have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ha6: Social comparison does have a direct significant positive influence on Generation Y students’ attitude towards credit.

Ho7: Attitude towards credit does not have a direct significant positive influence on Generation Y students’ credit usage intentions.

Ha7: Attitude towards credit does have a direct significant positive influence on Generation Y students’ credit usage intentions.

Ho8: Male and female Generation Y students do not differ in their attitude towards credit.

Ha8: Male and female Generation Y students do differ in their attitude towards credit.

Ho9: Male and female Generation Y students do not differ in their credit usage intentions.

Ha9: Male and female Generation Y students do differ in their credit usage intentions.

1.4 Research design and methodology

This study comprised a literature review and an empirical study. Quantitative research, using the survey method, was used for the empirical portion of the study, which focused on measuring attitudes. Consequently, a descriptive research design with a single

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cross-sectional sample was followed using a structured questionnaire containing close-ended questions on a six-point Likert type scale.

1.4.1 Literature Review

A review was done of the South African and international literature on the importance of consumer credit to the economy, student debt, the types of credit available, regulation of credit providers as well as the environmental factors that shape Generation Y consumers and their attitude towards credit. The different constructs of materialism, status consumption, social comparison, impulsive buying, money as a motivator and attitude towards credit were also examined. This literature was obtained from secondary data sources, including the Internet, journal articles, academic textbooks, conference papers, business articles, online academic databases, newspaper articles and magazine articles.

1.4.2 Empirical study

The empirical part of this study followed a descriptive research design using a single cross-sectional survey for data collection comprising the following methodology dimensions:

1.4.2.1 Target population

The target population refers to a collection of elements or objects that possess the information sought (Malhotra, 2018:331), which, in the case of this study, included Generation Y students enrolled at South African Higher Education Institutions (HEIs). Although Generation Y includes people born between 1986 and 2005 (Markert, 2004:21), this study focused on the university student segment of Generation Y. Thus the target population is specified as students between 18- and 26-year registered at a public South African HEI’s in 2017. An age range of between 18 and 26 was chosen because research has found that most students need at least two additional years to complete a degree, five years for a three-year degree and six years for a four-year degree (Van Broekhuizen et al., 2016:4; 6).

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1.4.2.2 Sampling frame

The sampling frame comprised the 26 registered South African public HEIs. A non-probability judgment sample of four HEI campuses was selected from the sampling frame; that is, two from a traditional university, one from a university of technology and one from a comprehensive university.

1.4.2.3 Sample method

A non-probability convenience sample of full-time undergraduate Generation Y students between the ages of 18 and 26 was used in this study, following a single cross-sectional design, in which information is obtained from a single sample once (Malhotra, 2018:71). Being cognisant of the convenience sampling technique, questions concerning the participants’ demographic information were included in the survey questionnaire, such as home language and province of origin, in an effort to ensure a representative sample was taken.

1.4.2.4 Sample size

The sample size is the total number of elements from the target population included in the research study (Cant et al., 2008:136). In this study, 700 full-time Generation Y students between the ages of 18 and 26, split between four university campuses made up the sample. From this sample, 630 completed questionnaires were received back. Therefore, the actual sample size used in the study was 630. This is in accordance with similar studies (Bevan-Dye & Ukupojivi, 2016:118; Mofokeng et al., 2015:135; Synodinos et al., 2013:19). Wolf et al. (2013:914) propose that the minimum number of respondents to be used in a covariance-based structural equation model is 200 and that reliable observations are more likely when there is a 10:1 ratio of cases to free parameters. Hair et al. (2010:662) propose that when seven or more constructs are used, the sample size should be between 300 and 500. A planned sample size of 700 and the actual sample size of 630 full-time Generation Y students were deemed satisfactory for this study. Attempts were made to split the sample between the four selected campuses and obtain at least 100 responses from each, thereby ensuring that the results were representative and not skewed in favour of one campus.

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1.4.2.5 Measuring instrument and data collection method

A standardised, self-administered questionnaire was used to collect data. A cover letter provided an introduction, explained the relevance and nature of the study as well as provided contact details. The questions were divided into three sections. Section A contained questions to determine the demographic composition of the sample, Section B determined actual credit use and Section C contained questions on the various selected constructs taken from previously validated scales. Section C used a six-point Likert type scale and measured materialism, status consumption, social comparison, impulsive buying, money as a motivator, attitude towards credit and credit intentions. Validated scales from Richins and Dawnson (1992), Eastman and Liu (2012), Monteiro et al. (2015), Rook and Fisher (1995), Norvilitis and Mao (2013) and Davies and Lea (1995) were adapted for this study.

The questionnaire was piloted once on 59 participants that did not form part of the sampling frame to ascertain its reliability.

Lecturers were contacted on each of the campuses and requested to assist in distributing and collecting the questionnaires. The relevance of the study and the voluntary and anonymous nature of the questionnaire were explained to students. Subsequently, the questionnaires were distributed and collected after completion.

1.4.2.6 Statistical analysis

The captured data were analysed using the Statistical Packages for Social Sciences (SPSS) and Analysis of Moment Structures (AMOS), Versions 25.0 for Windows. The following statistical methods were used on the empirical data sets:

 Frequency analysis

 Exploratory factor analysis  Descriptive analysis

 Collinearity diagnostics  Nomological validity

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 Independent samples t-test

1.5 ETHICAL CONSIDERATIONS

The research study complies with the ethical standards of academic research, which among other things, protect the identities and interests of participants. Participation in the survey was voluntary and no participant was coerced to respond.

The research proposal including an overview of the research methodology followed and the questionnaire was submitted to and accepted by the North-West University’s Ethics Committee. The questionnaire met the Committee’s standards and received the following ethical clearance number: ECONIT-2016-113.

1.6 THEORETICAL FRAMEWORK

The theoretical framework for this study builds on the work of previous social scientists that propose that materialism, status consumption, impulsive buying, social comparison, money as a motivator and a positive attitude towards credit will lead to an increased intention to use credit (Nga et al., 2011:245; Ponchio & Aranha, 2008:21; Fitzmaurice & Comegys, 2006:298; Watson, 1998:203).

1.7 DEMARCATION OF THE STUDY

This study was conducted among Generation Y students between the ages of 18 and 26 years, registered at South African public HEIs in 2017. This study considered four public HEI campuses located in South Africa. The four campuses chosen included two traditional university campuses, one comprehensive university campus and one university of technology campus.

1.8 CHAPTER CLASSIFICATION

Chapter 1: Introduction and background to the study

This chapter encompasses the introduction and background of the research study. It includes an outline of the problem, the research objectives, including the primary, theoretical and empirical objectives and the research methodology that was used in reaching the empirical objectives.

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Chapter 2: Students and credit

This chapter contains a detailed discussion on the history and function of credit and the contribution of credit to the economy. The chapter also discusses how the negative association with credit has changed to the point where consumer credit is now considered essential to the modern economy. Chapter 2 also includes an examination of the sources of consumer credit in South Africa, over-indebtedness and how the law is used to regulate credit providers. Lastly, it examines students’ relationship with credit and student debt.

Chapter 3: Attitudes that influence credit use

This chapter examines the international and local literature available on the environment that shaped Generation Y consumers, especially as it applies to South African Generation Y students. Next, it examines the attitudes that are relevant to and influence consumer credit use. The relevant literature on the influence of materialism, status consumption, social comparison, impulsive buying, money as a motivator, attitude towards credit and credit usage intentions are discussed. Chapter 3 also includes a proposed model based on available literature on the relationship between the attitudes discussed and credit intentions among Generation Y students.

Chapter 4: Research design and methodology

This chapter outlines the marketing research process and discusses the questionnaire design, sampling procedure and data collection method. The data analysis and statistical techniques that were used are also discussed in this chapter.

Chapter 5: Results and findings

This chapter includes the results from the pilot test and the main study. The demographics of the participants are discussed to show that it is a relatively representative sample. Then the actual credit use among the participants is examined. Next follows the exploratory factor analysis and the results of the structural equation modelling. It ends with a description of the results from the independent samples t-test.

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Chapter 6: Conclusions and recommendations

Chapter 6 provides an overview of the study and the results from the empirical research. Recommendations emanating from the study are made along with suggestions for further research based on the limitations of this study.

1.9 GENERAL

 Annexures are at the back of the thesis.

 Tables and figures are placed on the pertinent pages in the thesis.

 Where no source reference appears for figures and tables, it denotes own research.  Referencing is 2012 NWU Harvard style

1.10 CONCLUSION

This chapter contains the background to the study, the problem statement, study objectives and research methodology, together with an outline of the chapters that make up this thesis.

In the following chapter, a review of the literature on consumer credit with a focus on Generation Y student credit use is provided.

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CHAPTER 2 STUDENTS AND CREDIT

2

2.1 INTRODUCTION

Finance has at its core two functions, namely allowing a person to store surplus income for the future and allowing borrowers access to future earnings today (Gobat, 2012). It is often younger consumers borrowing to finance assets and maintain their lifestyle, while older consumers are saving for retirement after repaying debt. The rationale is found in the life cycle theory, which provides a framework for analysing the use of consumer credit. The life cycle theory holds that “consumption and savings decisions of households at each point in time reflect a more or less conscious attempt at achieving the preferred distribution of consumption over the life cycle, subject to constraints imposed by resources accruing to the household over its lifetime”. In applying this to students, the theory is that they grow up accustomed to a certain lifestyle provided by their parents, which they expect to maintain after their studies are complete but as students are unable to sustain while studying. They expect higher future earning and believe the lower income levels they are experiencing are temporary. They then accept a level of debt that they see as necessary to maintain their spending, which they plan to repay with their higher future income. This increases their debt tolerance and fosters a positive attitude towards debt. Therefore, expenditure and credit use may sometimes rather be a function of expected future income and not proportional to the limits of current income. This phenomenon can be seen in the higher debt levels of younger consumers and lower debt, together with saving and paid assets in older consumers (Hurwitz & Luiz, 2007:110; 130; Davies & Lea, 1995:663). This is not a linear effect and often consumers will borrow in times of low income to smooth consumption with the expectation to pay when their income increases (Kumar, 2016:200). This chapter examines how consumers finance purchases through lending, with a focus on student credit use.

The term consumer credit is used to describe several types of credit used by individuals that are not collateralised, or secured, by fixed assets or financial assets such as stocks and bonds and not used for business purposes. This includes instalment credit such as

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vehicle finance and revolving credit such as credit cards (Durkin et al., 2014). On 3 May 2016, the total amount of global household debt stood at 42.3 trillion United States Dollars (US$) with an annual growth of 3.3 percent. This is approximately US$6 000 for every man, woman and child on earth. Of this, 78 percent are home mortgages, 18 percent non-credit card consumer debt and 4 percent non-credit card balances. While the United States is still the world’s largest consumer lending market, consumer debt is also rapidly growing in countries like China where consumer debt is growing at 18.7 percent a year (Finaccord, 2016).

Credit use is, however, not a new phenomenon. Credit use goes back thousands of years, although there are three important events that stand out. The first is the Law of Hammurabi, created in 1754 BC and one of the oldest deciphered writings of significant length in the world that, among other things, regulated credit and interest rates (Armstrong, 2018). The second is the foundation of the modern banking system in the middle ages by pawnbrokers, moneychangers and merchant bankers (Anon., 2008). The third is the industrial revolution during which increased wages led to increased demand for consumer goods and credit, as well as a demand for capital to invest in production (Ventura & Voth, 2016:26; Coggan, 2012). The history of consumer credit is discussed shortly in Section 2.2.

For many centuries borrowing money was seen as foolish and interest-bearing loans was even forbidden by the Catholic Church (Munro, 2003:507). This has changed and today credit is seen as a boon, contributing to the social well-being of consumers and essential to economic growth (Kostov et al., 2015:34; Ironfield-Smith et al., 2005:133). The growth of consumer credit and the contribution to the modern economy is discussed in Section 2.3 and 2.4. Access to consumer credit has also improved as technology improved and consumers have access to financial services anywhere on earth (Narteh, 2012:2). How technology has influenced credit providers and access to credit is discussed in Section 2.5. South Africans, in particular, have embraced credit and consequently, become one of the most indebted countries, with 86 percent of South Africans having some kind of debt (Ferreira, 2017; Thomas, 2015). Credit use in South Africa is discussed in Section 2.6. There are various types of credit and sources available to consumers. Credit is usually divided into secured and unsecured credit and instalment or non-instalment credit.

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The different types of credit, the sources as well as the actual credit use by South Africans are discussed in Section 2.7. Many South Africans have become over-indebted and the consequences as well as government measures to regulate credit, mainly through the National Credit Act (NCA), are discussed in Section 2.8.

Students borrow money not only to pay for their tuition fees but also food, rent and luxuries. Student debt is a controversial subject, not only in South Africa but globally and many other countries have experienced student protests similar to the #Feesmustfall movement in South Africa (Cele, 2016; Pretorius, 2016; Mulhere, 2015; McMahon, 2012). Students, money and student debt is discussed in Section 2.9.

Throughout Chapter 2, there is evidence of a global trend towards borrowing instead of saving. That being said, individual attitudes towards money and credit also plays a role in determining a consumers’ willingness to use credit and how deep they are willing to go into debt (Dunn & Mirzaie, 2015:201; Liao & Liu, 2012:1263). Section 2.10 deals with some of the non-economic and individual factors that influence credit use.

2.2 HISTORIC USE OF CREDIT

Although some may think of credit as a modern concept, it has actually been around for thousands of years. Some economists have argued that the emergence of money is due to the inefficiencies of barter economies but there is very little historical evidence that shows that this is how money actually came about. However, research does show that prehistoric societies and early historic economies used credit and centralised redistribution in allocating resources. Credit is more efficient than barter when trading partners know each other and currency either does not exist or is in low supply (Baker, 2014:1).

The earliest codification of credit laws is contained in the Code of Hammurabi, written almost 4 000 years ago. In it, King Hammurabi capped the interest rates on silver at 20 percent and required the terms of a loan to be captured in writing. The first credit crisis occurred in 594 B.C. and almost caused open rebellion in Athens, Greece. This prompted the laws regulating credit written by Hammurabi to be reformed and people sold into slavery to repay debt to be freed (Armstrong, 2018).

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Aristotle notably said,

The most hated sort [of money-making] and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural use of it. For money was intended to be used in exchange, but not to increase at interest. And this term usury which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Whereof of all modes of making money this is the most unnatural (Munro, 2003:508).

The Roman Empire further reduced the interest rate during the reign of Augustus and it sank as low as 4 percent, although the upper limit was set at 12.5 percent (Armstrong, 2018). The Romans also used a credit system in which Nomina or bonds entered into an account book could be transferred and traded for assets such as land (Del Negro & Tao, 2013).

Modern banking can trace its origins to the Middle Ages and to the services of the pawnbrokers, moneychangers and merchant bankers. Their functions ranged from the conversion of coins to holding and transferring large sums of money (Anon., 2008). Transferring large sums of money were important because metal coins were heavy and difficult to transport when large purchases needed to be made. It was much easier to deposit money and then provide the seller with a cheque with which the seller could later claim the deposit. This network later expanded to such a degree that a person could deposit money in one city and then claim it from a banker in the next. As demand for their services increased, they also started granting loans to merchants and lords (Brittain, 2014). The Catholic Church initially banned Christians from engaging in usury, charging interest on loans and medieval loan contracts often omitted any mention of interest (Munro, 2003:507). Student loans also started in the middle ages, going as far back as the 11th century and perhaps even earlier, with the earliest documented student loan system founded in 1240 by Robert Grosseteste, the Bishop of Lincoln at Oxford University (Adams, 2016).

Credit helped England industrialise and thereby ushering in the industrial revolution (Ventura & Voth, 2016:26). Not only did it allow people to invest in new machinery and thereby increase outputs, credit also allowed workers to buy products they could not

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afford upfront thus increasing demand for the products produced (Coggan, 2012). In Europe, instalment purchases were also popular for products such as furniture and large department stores called credit houses sold all types of goods to urban, working class customers on credit. In the 19th century America, this new form of consumer credit was pioneered by IM Singer & Co when they established a sophisticated agent structure that enabled customers to purchase its products through convenient, reliable instalment plans. Another form of credit that was popular in America was catalogue sales with instalment payments. Credit became so popular that several countries saw the need to start regulating the practice through legislation at the start of the 20th century (Logemann, 2011:532).

Post World War 2, the West experienced another boom in consumer spending fuelled by consumer credit. Many researchers believe that America and their ‘pursuit of happiness’ was one of the prime drivers of this new consumer credit-driven economy (Logemann, 2011:530). By the 1970s, half of Americans were using instalment credit to fund purchases compared to 10 percent of consumers in other industrialised nations, such as Germany. This mass consumption or consumerism due to easy access to credit was seen by the United States of America (USA) government as a viable way of expanding purchasing power as well as stimulating economic growth through creating demand. However, many people in other countries decried American consumerism and saw it as a threat to traditional values (Logemann, 2008:525; 542). Notwithstanding this, any efforts to stop the credit train were in vain and today debt and consumerism is a global phenomenon. The Victorian virtues of ‘neither a lender nor a borrower be’ has been replaced by the notion that happiness depends on material possession made accessible through easy credit (Manktelow, 2011:259). The vital role of credit in the modern economy, as well as current credit use, will be discussed in the remainder of this chapter.

2.3 PRESENT PERCEPTIONS OF CREDIT AND THE RESULTING GROWTH IN CREDIT USE

While the prevailing wisdom for many generations was that borrowing and debt were to be avoided, it gradually changed to a point where it is seen as beneficial, making a useful contribution to the living standard and social well-being of consumers (Ironfield-Smith et al., 2005:133). Indeed, the high standard of living in Western societies is often attributed

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to the widespread availability of credit (Beares, 2013:3). It is not only the West that has seen consumer debt growing; China experienced a consumer credit explosion with consumer credit increasing 373-fold from 1997 to 2010 and though this may be an extreme example, it is by no means an isolated case (Liao & Liu, 2012:1263).

According to Jacobs and Smith (2010:11), this is also true in South Africa where a culture of consumption has developed that has led to increased spending and higher levels of indebtedness. There are several factors contributing to this growth but the increased availability of credit is one of the main drivers. The advent of democracy has increased access to financial services to a previously marginalised part of the population (Hurwitz & Luiz, 2007:108). Indeed, a large part of the growth in credit consumption can be attributed to debt being incurred by lower income earners, according to economist Mike Schussler (2011). Therefore, the banking sector as a credit provider, along with capital inflows has become a conduit for economic growth through the creation of local credit and increased demand (Nzukuma, 2017; Kaminsky & Reinhart, 1999:473).

However, excessive capital inflows can also be detrimental to the economy by swamping the market with excessive credit, which, in turn, may lead to a consumption boom and asset price bubbles. Rapid monetary expansion can lead to inflation, a widening current account and appreciation of the exchange rate (Gossel & Biekpe, 2012:923). Easy availability of credit can also have other severely negative consequences. The 2007– 2008 financial crisis, now called ‘The Great Recession’, is considered by many economists to be the worst financial crisis since the great depression of the 1930s (Weinberg, 2013; Pendery, 2009).

The cause of the financial crisis is complex and consisted of an interplay of policies that encouraged private home ownership, easier access to loans, overvaluation of bundled subprime mortgages and questionable trading practices. Furthermore, compensation structures that reward short-term deals flow over long-term value creation and insufficient capital holdings by banks to cover the financial commitments they were making made a financial crisis all but inevitable (Keller & Strocker, 2014; Simkovic, 2009:253; Ivry 2008). According to The Economist (2013), the crisis started with the collapse of Lehman Brothers, which led to the total collapse of large financial institutions, necessitated the bailout of banks by national governments, caused downturns in stock markets around the

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world and led to the worst recession in 80 years. The recession, in turn, led to the failure of businesses, a decline in consumer wealth, rising unemployment and a downturn in the global economy, which contributed to the European sovereign-debt crisis that saw several European governments in need of financial assistance from the European Union (Williams, 2012; Baily & Elloitt, 2009).

Although some countries like the USA and China managed to drag themselves out of the recession, managing 12 and 65 percent total growth respectively since then, other countries like Italy and Greece still have not recovered and their GDP has declined by 6 and 24 percent respectively of their prerecession levels (Arias & Yen, 2015). The credit ratings of several major countries such as Germany, China and Russia were downgraded, while South Africa’s credit rating remained unchanged due in part to the NCA, which set stricter requirements for consumers to access credit in a bid to curb reckless spending and over-indebtedness (Marais, 2009; Ntingi, 2008).

South Africa did not emerge unscathed; however, output in the mining sector shrank by 33 percent and the manufacturing sector shrank by 22 percent in the final quarter of 2008, the biggest decreases on record. Consumer spending shrank by almost 5 percent, there was a 47 percent rise in company failures in the first four months of 2009 and household debt rose to 80 percent of disposable income from around 50 percent in 2003 (Marais, 2009). The world global recession of 2007-2008 also hit consumers who were forced to reassess their finances and limit any new credit spending (Summers & Kroes, 2009:1). This does not mean that the negative consequence of irresponsible credit use outweighs the positive contribution of credit to the modern economy. According to Cecchetti et al. (2011:1), finance has become one of the building blocks of modern societies and access to credit improves welfare and enhances growth although excessive levels of credit are to be guarded against and may drag down growth as proven by the Great Recession.

2.4 CREDIT AND PROSPERITY

The number of people living in extreme poverty fell by 1.1 billion between 1990 and 2013 but millions of people are still living beneath the poverty line (Bagri, 2016). Developing countries face several serious challenges that include unemployment, sub-standard education, limited access to infrastructure and corruption (Mobius, 2017).

Credit usage intentions amongst Generation Y students